Soros Fund Management LLC v. Tradewinds Holdings, Inc. et al

Filing
43

OPINION & ORDER re: 30 MOTION to Dismiss Declaratory Judgment Action. filed by Coreolis Holdings, Inc., Tradewinds Holdings, Inc. For the reasons stated above, the Court will abstain and Defendants' motion to dismiss is GRA NTED. In light of the Court's conclusion based on Wilton and Dow Jones, it is not necessary to address the parties' arguments related to dismissal pursuant to Rule 12(b)(7). The Clerk of the Court is respectfully directed to terminate the motion docketed at ECF No. 30, and to close this case and remove it from the docket of this Court. SO ORDERED. (Signed by Judge John F. Keenan on 3/12/2018) (anc)

Case 1:09-md-02013-PAC Document 57
Filed 09/30/10 Page 1 of 45
USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: 03/12/2018
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
------------------------------ X
UNITED MANAGEMENT LLC,
SOROS FUND STATES DISTRICT COURT :
SOUTHERN DISTRICT OF NEW YORK
:
-----------------------------------------------------------x
Plaintiff,
:
In re FANNIE MAE 2008 SECURITIES :
:
08 Civ. 7831 (PAC)
LITIGATION
: No. 17 09 MD 2013 (PAC)
-against:
Civ. 3187 (JFK)
:
OPINION & ORDER
:
:
OPINION & ORDER
TRADEWINDS HOLDINGS, INC.,
:
-----------------------------------------------------------x
and COREOLIS HOLDINGS, INC.,
:
:
Defendants.
:
------------------------------ X
HONORABLE PAUL A. CROTTY, United States District Judge:
APPEARANCES
FOR PLAINTIFF SOROS FUND MANAGEMENT, LLC
BACKGROUND1
Martin Klotz
Arthur Biller
The FARR & of this decade saw
WILLKIE early yearsGALLAGHER LLP a boom in home financing which was fueled, among
other things,Fitzgerald rates and lax credit conditions. New lending instruments, such as
Raymond by low interest
David J. McCarthy
BUTLER, FITZGERALD, FIVESON & McCARTHY PC
subprime mortgages (high credit risk loans) and Alt-A mortgages (low-documentation loans)
FOR DEFENDANTS going. Borrowers played a roleINC.
kept the boom TRADEWINDS HOLDINGS, too; they took on unmanageable risks on the
AND COREOLIS HOLDINGS, INC.
Bruce J. Ressler
assumption that the market would continue to rise and that refinancing options would always be
Ellen R. Werther
RESSLER the future. Lending discipline was lacking in the system. Mortgage originators did
available in & RESSLER
JOHN not hold these high-risk mortgage loans. Rather than carry the rising risk on their books, the
F. KEENAN, United States District Judge:
Before sold Court is a motion by Defendants often as securitized packages
originatorsthe their loans into the secondary mortgage market, TradeWinds
Holdings, as mortgage-backed securities (“MBSs”). MBS markets grew almost exponentially.
known Inc. (“Holdings”) and Coreolis Holdings, Inc.
(“Coreolis,” then thetogether with Holdings, the “Defendants”) toabruptly
But and, housing bubble burst. In 2006, the demand for housing dropped
dismiss home prices began to fall. In light of the changing housing market, banks modified their
and Plaintiff Soros Fund Management LLC’s (“SFM”) complaint
seeking declaratory became unwilling to refinance argue that dismissal is
lending practices and relief. Defendants home mortgages without refinancing.
proper under Federal Rule of Civil Procedure 12(b)(7) due to the
1
absence ofotherwise indicated, all references cited in“(¶ _)” oralternative, because the
Unless certain entities or, as the to the “Complaint” are to the Amended Complaint,
dated June 22, 2009. For purposes of this Motion, all allegations in the Amended Complaint are taken as true.
1
1
Court should abstain in favor of another proceeding pending in
North Carolina state court.
In response, SFM argues that
dismissal under Rule 12(b)(7) is unwarranted and that the Court
should not abstain due to the presence of issues of federal law.
For the reasons stated below, the Court will abstain and
Defendants’ motion is granted.
I. Background
Familiarity with this Court’s prior Opinion and Order is
presumed. (See Op. & Order, ECF No. 25 (filed May 16, 2017).)
However, a summary of the history of this action and related
litigation is appropriate.
SFM is an investment advisory firm. (Compl. ¶ 3, ECF No. 1
(filed May 1, 2017).)
Coreolis owns Holdings. (Id. ¶ 5.)
During the relevant period, Holdings owned TradeWinds Airlines,
Inc. (“Airlines”), now a Chapter 7 debtor in bankruptcy
proceedings pending before the Bankruptcy Court for the Southern
District of Florida. (Id. ¶ 5; Pl.’s Mem. in Opp’n at 2, ECF No.
34 (filed July 17, 2017).)
The instant action arises from the fact that Defendants
hold state court judgments against C-S Aviation Services, Inc.
(“C-S Aviation”), a management company for an aircraft leasing
business from which Defendants and Airlines leased aircraft.
(Compl. ¶¶ 11, 16.)
In 2010, a North Carolina state court
entered two judgments against C-S Aviation, one in favor of
2
Defendants and one in favor of Airlines. (Id. ¶ 16; Pl.’s Mem.
in Opp’n at 4.)
Earlier, in 2004, the North Carolina state
court entered a default against C-S Aviation, which failed to
appear, having gone out of business prior to the commencement of
the litigation. (Compl. ¶ 13; Pl. Mem. in Opp’n at 3.)
After obtaining the judgments against C-S Aviation,
Defendants and Airlines brought veil-piercing actions against
George Soros and Purnendu Chatterjee in this Court (the “SDNY
Action”), alleging that they were C-S Aviation’s alter egos and
responsible for its debts. See TradeWinds Airlines, Inc. v.
Soros, 101 F. Supp. 3d 270, 271-72 (S.D.N.Y. 2015).
In 2015,
the Court granted summary judgment for Soros and Chatterjee,
concluding that the “absence of evidence suggesting a ‘mingling
of the operations’ of C-S Aviation and Soros and Chatterjee is
fatal to Plaintiffs’ claims.” Id. at 272, 279.
On May 26, 2016, Defendants and Airlines commenced a new
action in North Carolina state court (the “NC Action”),
asserting a veil-piercing claim against SFM and seeking to hold
it liable as the alter ego of C-S Aviation. (Compl. ¶ 20; Decl.
of Ellen R. Werther Ex. 2, ECF No. 31-2 (filed June 16, 2017).)
Subsequently, Defendants and Airlines amended their complaint to
add C-S Aviation as a defendant. (Compl. ¶ 22; Decl. of Ellen R.
Werther Ex. 2.)
On June 23, 2016, SFM removed the case to the
Middle District of North Carolina and later moved to dismiss the
3
case or otherwise transfer it to the Southern District of New
York. (Compl. ¶¶ 23-24.)
On March 31, 2017, Judge Loretta Biggs
of the Middle District of North Carolina granted Defendants and
Airlines’ motion to remand the case to North Carolina state
court. (Id. ¶ 26; Decl. of Ellen R. Werther Ex. 6.)
On May 1, 2017, SFM filed the instant action in this Court
(the “Declaratory Judgment Action”), seeking to enjoin the NC
Action and a declaration that SFM is not liable for the
judgments against C-S Aviation. (Compl. ¶ 1.)
After a hearing
on May 8, 2017, the Court denied SFM’s request for injunctive
relief. (Order, ECF No. 20 (filed May 9, 2017); Op. & Order, ECF
No. 25 (filed May 16, 2017).)
The Court concluded that the
relitigation exception to the Anti-Injunction Act, 28 U.S.C. §
2283, did not apply and, thus, the Court lacked authority to
enjoin the NC Action. (Op. & Order at 11, ECF No. 25.)
The
Court noted several other factors that further counseled against
injunctive relief, including SFM’s acknowledgement of a
“theoretical possibility of inconsistent rulings” and that
“satisfactory resolution of all claims by all parties can be
achieved in the North Carolina state court.” (Id. at 11-12.)
Additionally, the Court noted that “allowing the North Carolina
state court to proceed does not alleviate its obligation to
consider the preclusive effect of the prior federal judgment.”
(Id. at 12.)
4
On May 10, 2017, SFM moved to dismiss the NC Action for
lack of personal jurisdiction or, in the alternative, to stay
the NC Action pending the outcome of the Declaratory Judgment
Action. (Pl.’s Mem. in Opp’n at 7; Decl. of Ellen R. Werther Ex.
12.)
According to Defendants, oral argument on SFM’s motion
will take place on March 15, 2018, and the North Carolina state
court is expected to issue a decision shortly thereafter.
(Letter from Bruce J. Ressler to Hon. John F. Keenan, ECF No. 42
(filed Dec. 20, 2017).)
With respect to the Declaratory Judgment Action, Defendants
assert two grounds for dismissal.
First, Defendants contend
that dismissal is warranted under Rule 12(b)(7) for failure to
join C-S Aviation or Airlines. (Defs.’ Mem. at 8, ECF No. 32
(filed June 16, 2017).)
Second, Defendants argue that, in light
of the pending NC Action, the Court should abstain pursuant to
Wilton v. Seven Falls Co., 515 U.S. 277 (1995). (Id. at 13.)
The Court heard oral argument on Defendants’ motion on November
14, 2017.
II. Applicable Law
A. The Declaratory Judgment Act
The Declaratory Judgment Act, 28 U.S.C. § 2201, provides as
follows:
In a case of actual controversy within its
jurisdiction, . . . any court of the United
States, upon the filing of an appropriate
5
pleading, may declare the rights and other legal
relations of any interested party seeking such
declaration, whether or not further relief is or
could be sought.
Thus, by its express terms, the Declaratory Judgment Act “vests
a district court with discretion to determine whether it will
exert jurisdiction over a proposed declaratory action or not.”
Dow Jones & Co., Inc. v. Harrods Ltd., 346 F.3d 357, 359 (2d
Cir. 2003).
The Second Circuit has identified five factors “to guide
the exercise of discretion in Declaratory Judgment Act cases.”
Id.
A district court entertaining a declaratory judgment action
must consider:
(1) “whether the judgment will serve a useful
purpose in clarifying or settling the legal issues involved”;
(2) “whether a judgment would finalize the controversy and offer
relief from uncertainty”; (3) “whether the proposed remedy is
being used merely for ‘procedural fencing’ or a ‘race to res
judicata’”; (4) “whether the use of a declaratory judgment would
increase friction between sovereign legal systems or improperly
encroach on the domain of a state or foreign court”; and (5)
“whether there is a better or more effective remedy.” Id. at
259-60; see also Niagara Mohawk Power Corp. v. Hudson RiverBlack River Regulating Dist., 673 F.3d 84, 105-06 (2d Cir. 2012)
(finding abuse of discretion and remanding where district court
did not consider Dow Jones factors before deciding to abstain).
6
B. Wilton Abstention
In Wilton, the Supreme Court recognized that “[d]istinct
features of the Declaratory Judgment Act . . . justify a
standard vesting district courts with greater discretion” to
abstain in declaratory judgment actions. 515 U.S. at 286.
Specifically, the Supreme Court “held that a district court’s
decision to stay or dismiss a declaratory judgment action in
deference to a parallel state court proceeding is governed by
the discretionary standard set forth in Brillhart v. Excess
Insurance Co., 316 U.S. 491 (1942), rather than the ‘exceptional
circumstances’ test developed in Colorado River[.]” Youell v.
Exxon Corp., 74 F.3d 373, 374 (2d Cir. 1996).
“In the
declaratory judgment context, the normal principle that federal
courts should adjudicate claims within their jurisdiction yields
to considerations of practicality and wise judicial
administration.” Wilton, 515 U.S. at 288.
“Although the Wilton Court did not lay out a bright-line
test for abstention in favor of state court litigation, it did
endorse the non-exclusive list of factors set forth in Brillhart
v. Excess Ins. Co., 316 U.S. 491 (1942).” Glenclova Inv. Co. v.
Trans-Resources, Inc., 874 F. Supp. 2d 292, 307 (S.D.N.Y. 2012).
Relevant considerations include:
(1) “the scope of the pending
state proceeding and the nature of defenses open there;”
(2) “whether the claims of all parties in interest can
7
satisfactorily be adjudicated in that proceeding”; (3) “whether
necessary parties have been joined”; and (4) “whether such
parties are amenable to process in” the state proceeding.
Wilton, 515 U.S. at 283 (quoting Brillhart, 316 U.S. at 495).
Some courts in this District, citing Wilton and Brillhart, have
analyzed as many as nine factors. See, e.g., TIG Ins. Co. v.
Fairchild Corp., No. 07 Civ. 8250(JGK), 2008 WL 2198087, at *2
(S.D.N.Y. May 27, 2008).
Under Second Circuit authority, Wilton “does not apply
where . . . a plaintiff does not seek purely declaratory relief,
but also . . . seeks damages caused by the defendant’s conduct.”
Kanciper v. Suffolk Cnty. Soc’y for the Prevention of Cruelty to
Animals, Inc., 722 F.3d 88, 93 (2d Cir. 2013) (quoting Niagara
Mohawk, 673 F.3d at 106).
Additionally, a district court may
abuse its discretion by abstaining under Wilton when a
declaratory judgment action calls for resolution of “novel
questions of federal law.” Youell, 74 F.3d at 376.
III. Discussion
A. Abstention is Warranted
Applying the Dow Jones factors, which “guide the exercise
of discretion in Declaratory Judgment Act cases,” the Court
concludes that abstention is warranted. Dow Jones, 346 F.3d at
359.
8
The first factor weighs in favor of abstention.
A
declaratory judgment would not serve a useful purpose because
there is an earlier filed case on the merits pending in North
Carolina state court.
“One basis for declining to hear a
declaratory judgment action is the existence of a pending action
in another court that will resolve the controversies between the
parties[.]” Gates Constr. Corp. v. Koschak, 792 F. Supp. 334,
336 (S.D.N.Y. 1992).
The Court has previously observed that
there is no dispute that “satisfactory resolution of all claims
by all parties can be achieved in the North Carolina state
court.” (Op. & Order at 12.)
Thus, SFM may raise its desired
defenses, including those related to federal due process and the
application of federal common law that it wishes to raise here,
in the NC Action. (See Tr. of Hr’g at 21, ECF No. 39 (filed Dec.
1, 2017).)
The second factor also weighs in favor of abstention.
Given the pendency of the NC Action and the fact that a ruling
here would not bind all the parties in the NC Action,1 a
declaratory judgment here would not promise finality. See St.
Paul Fire & Marine Ins. Co. v. Scopia Windmill Fund, LP, 87 F.
Supp. 3d 603, 608 (S.D.N.Y. 2015) (“[T]here is no pending
parallel state court action, as is often the case when courts
As noted elsewhere in this Opinion, Airlines and C-S Aviation
are parties to the NC Action, but not here.
1
9
abstain from hearing declaratory judgment actions, and so
judgment in this case will finalize the controversy.”).
Nor
would a declaratory judgment provide relief from uncertainty.
“The purpose of the Declaratory Judgment Act is to provide an
avenue for ‘parties who [are] uncertain of their rights [to]
adjudicate their claims without first engaging in dubious
conduct.’” Am. Int’l Grp., Inc. v. Pac. Inv. Mgmt. Co. LLC, 15
Civ. 3339 (PAC), 2016 WL 1572994, at *3 (S.D.N.Y. Apr. 18, 2016)
(quoting Penguin Books USA Inc. v. Walsh, 929 F.2d 69, 72 (2d
Cir. 1991)).
Defendants and Airlines obtained judgments against
C-S Aviation more than seven years ago and the underlying
misconduct occurred more than a decade ago.
SFM was sued in
connection with that conduct in the NC Action, which was filed
before SFM brought the Declaratory Judgment Action.
As noted
above, there is no reason that SFM’s desired defenses cannot be
adjudicated by the North Carolina state court, nor is there any
reason to doubt that they would be promptly ruled on. (See
Letter from Bruce J. Ressler to Hon. John F. Keenan, ECF No. 42
(stating that oral argument on SFM’s motion to dismiss the NC
Action will take place on or about March 15, 2018, and a
decision is expected “shortly thereafter”).)
With respect to the third factor, Defendants and SFM each
accuse the other of procedural brinksmanship and forum shopping.
On the one hand, Defendants charge SFM with forum shopping by
10
attempting to remove to federal court and transfer the NC Action
to this District and then, when that strategy failed, filing the
Declaratory Judgment Action with this Court. (Defs.’ Mem. at
18.)
On the other hand, SFM contends that Defendants forum
shopped by selecting a new, state court forum after receiving an
adverse ruling in the SDNY Action. (Pl.’s Mem. in Opp’n at 20.)
These strategies may well offset each other, however the Court
observes that adjudicating the Declaratory Judgment Action could
“impermissibly circumvent Judge [Biggs’] ruling that removal was
improper by providing a rear entrance into federal court.” Am.
Int’l Grp., 2016 WL 1572994, at *3.
The fourth factor weighs in favor of abstention.
A
declaratory judgment “would undermine principles of federalism
and comity by needlessly intruding on the state court’s
jurisdiction to resolve the dispute.” Id. at *4.
SFM contends
otherwise, arguing that the Declaratory Judgment Action, like
Youell, raises “novel questions of federal law” that demand
federal court resolution. 74 F.3d at 376.
SFM also claims that
the instant case is “on all fours” with Youell. (Pl.’s Mem. in
Opp’n at 9.)
The Court will address each of SFM’s arguments in
turn.
SFM argues that “federal law governs the question of what
law applies to SFM’s res judicata argument” and urges the Court
to “exercise jurisdiction to ensure that the appropriate federal
11
rule is applied to protect the res judicata effect of this
Court’s own prior judgment.” (Pl.’s Mem. in Opp’n at 1, 14-15.)
A court, however, does not “usually ‘get to dictate to other
courts the preclusion consequences of its own judgment.’” Smith
v. Bayer Corp., 564 U.S. 299, 307 (2011) (quoting C. Wright, A.
Miller, & E. Cooper, Federal Practice and Procedure § 4405 (2d
ed. 2002).
Furthermore, “[d]eciding whether and how prior
litigation has preclusive effect is usually the bailiwick of the
second court[.]” Id. (emphasis in original); see also Staffer v.
Bouchard Transp. Co., Inc., 878 F.2d 638, 643 (2d Cir. 1989)
(“Here, the proper forum for a complete investigation of the res
judicata effects of the district court’s judgment is the state
court[.]”).
Thus, even assuming that SFM is correct with
respect to the applicable principles of res judicata, the
process for reaching a determination is well-settled and there
is no need for the Court to adjudicate the Declaratory Judgment
Action to “protect” its prior judgment.
SFM also contends that courts in this Circuit have not
squarely addressed the narrow question of “whether a default
judgment can be enforced against an alter ego who has not had
notice and an opportunity to defend the underlying claims[.]”
(Pl.’s Mem. in Opp’n at 11 (emphasis in original).)
However,
courts in this District have held that a judgment may be
enforced against an alter ego, even if the alter ego was not a
12
party to the underlying suit, so long as the alter ego is a
party to the action determining the alter ego status. See
Imagineering, Inc. v. Lukingbeal, No. 94 CIV. 2589(RLC), 1997 WL
363591, at *5 n.11 (S.D.N.Y. June 30, 1997) (“Nonetheless,
‘[w]hen the alleged “alter ego” is a party to the action where
the “alter ego” status is litigated, due process will be
satisfied.’” (quoting Wm. Passalacqua Builders, Inc. v. Resnick
Developers S., Inc., 611 F. Supp. 281, 284 (S.D.N.Y. 1985),
rev’d in part on other grounds, 933 F.3d 131 (2d Cir. 1991)));
see also Wm. Passalacqua Builders, 611 F. Supp. at 284
(“Therefore, although Defendants were not named parties to the
underlying action, if they are found to be ‘alter egos’ of
Developers, the judgment may be enforced against them, as if
they were named parties to that action.”).
Moreover, “[w]hen
considering declaratory judgment actions, many courts, after
weighing all the pertinent factors, have deemed it proper to
abstain from jurisdiction even where a federal question exists.”
Machat v. Sklar, No. 96 Civ. 3796 SS, 1997 WL 599384, at *4
(S.D.N.Y. Sept. 29, 1997).
Furthermore, the Court is not persuaded that the instant
case is “on all fours” with Youell.
There, the Second Circuit
reversed the district court’s dismissal of a declaratory
judgment action due to the presence of a “novel federal
admiralty question.” 74 F.3d at 376.
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A key point of distinction
from the instant case is the determination that Youell “sounded
in admiralty.” Youell v. Exxon Corp., 48 F.3d 105, 108 (2d Cir.
1995), vacated, 516 U.S. 801 (1995); see also Folksamerica
Reinsurance Co. v. Clean Water of New York, Inc., 413 F.3d 307,
317 (2d Cir. 2005) (explaining that “we exercised admiralty
jurisdiction” in Youell).
Elsewhere, the Second Circuit has
referred to “the federal interest . . . in the quintessentially
federal realm of admiralty[.]” Blue Whale Corp. v. Grand China
Shipping Dev. Co., Ltd., 722 F.3d 488, 497 (2d Cir. 2013).
Here, in contrast, diversity of citizenship forms the alleged
basis for jurisdiction and the controversy—SFM’s possible status
and liability as an alter ego—sounds in state law. See OOO v.
Empire United Lines Co., Inc., 557 F. App’x 40, 45 n.4 (2d Cir.
2014) (“[U]nder New York choice of law rules, the state of
incorporation’s law governs veil piercing.”)
Accordingly,
Youell does not compel the Court to hear the Declaratory
Judgment Action.
The fifth and final Dow Jones factor also weighs in favor
of abstention.
There is “a simpler, better and more effective
remedy than a declaratory judgment action:
allowing [SFM’s]
defense[s] to be resolved in the first-filed underlying
litigation” in North Carolina state court. Am. Int’l Grp., 2016
WL 1572994, at *4.
14
In sum, the Court finds that at least four of the five Dow
Jones factors weigh in favor of declining to exercise
discretionary jurisdiction here.
The Brillhart factors identified by the Supreme Court in
Wilton reinforce the conclusion that abstention is warranted.
It is appropriate to invoke the Wilton doctrine here due to the
presence of a federal declaratory judgment action and a parallel
proceeding in state court.
Also, reference to Wilton is
appropriate because, at this point in the litigation, SFM seeks
“purely declaratory relief.” Kanciper, 722 F.3d at 93 (quoting
Niagara Mohawk, 673 F.3d at 106).
The complaint made no demand
for damages and the Court has denied SFM’s requested injunctive
relief.2 (See Order, ECF No. 20; Op. & Order, ECF No. 25.)
The first Brillhart factor weighs in favor of abstention.
The “scope of the pending state proceeding” is broader than, but
also contains all of the issues presented in, the Declaratory
Judgment Action.
Both the Declaratory Judgment Action and the
NC Action raise the same issue:
whether SFM may be held liable
for the judgments against C-S Aviation under a veil-piercing
theory. (See Compl. ¶ 1; Decl. of Ellen R. Werther Ex. 2.)
All
of the parties in the Declaratory Judgment Action are also
SFM’s counsel agreed that “this is a purely declaratory
judgment case for purposes of this motion[.]” (Tr. of Hr’g at
20, ECF No. 39.)
2
15
parties in the NC Action.
The NC Action also includes Airlines
and C-S Aviation, two parties with an interest in the outcome
and whose involvement can reasonably be expected to contribute
to the litigation.
As to “the nature of defenses open” in the
NC Action, SFM’s counsel has acknowledged that the North
Carolina state court can address all of the issues presented,
including SFM’s desired defenses. (Tr. of Hr’g at 14-15, ECF No.
28 (filed May 23, 2017); Tr. of Hr’g at 21, ECF No. 39.)
Thus,
it is also clear that the second Brillhart factor—i.e., “whether
the claims of all parties in interest can satisfactorily be
adjudicated in” the NC Action—also weighs in favor of
abstention.
Regarding the third and fourth Brillhart factors, all
entities relevant to the dispute—including all parties to the
Declaratory Judgment Action—are parties to the NC Action and
have been served with process. (Defs.’ Mem. at 17.)
Under Wilton, “the overarching principle guiding the
district court’s analysis is ‘whether the questions in
controversy between the parties to the federal suit . . . can
better be settled in the proceeding pending in the state
court.’” Glenclova, 874 F. Supp. 2d at 307 (quoting Wilton, 515
U.S. at 282.)
The Court’s analysis of the Brillhart factors
supports the conclusion that the questions in controversy here
can better be settled in the NC Action.
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B. Dismissal of the Declaratory Judgment Action is Appropriate
Having decided to abstain, the Court further concludes that
dismissal of the Declaratory Judgment Action is appropriate.
According to the Wilton Court, “where the basis for declining to
proceed is the pendency of a state proceeding, a stay will often
be the preferable course, because it assures that the federal
action can proceed without the risk of a time bar if the state
case, for any reason, fails to resolve the matter in
controversy.” 515 U.S. at 288 n.2.
Where, however, the entirety
of a plaintiff’s claim in a declaratory action constitutes a
defense in a pending state proceeding, courts in this District
have found that dismissal, rather than a stay, is proper. See
ICBC Standard Sec., Inc. v. Luzuriaga, 217 F. Supp. 3d 733, 741
(S.D.N.Y. 2016); A&E Television Networks v. Genuine Entm’t,
Inc., No. 09 Civ. 7422(RJH), 2010 WL 2308092, at *3 (S.D.N.Y.
June 10, 2010); TIG Ins. Co. v. Fairchild Corp., No. 07 Civ.
8250(JGK), 2008 WL 2198087, at *5 (S.D.N.Y. May 27, 2008).
As
in ICBC, A&E, and TIG Ins. Co., the entirety of SFM’s claim in
the Declaratory Judgment Action also constitutes a defense in
the NC Action. (See Compl. ¶ 39 (seeking declaration that SFM is
not liable for judgments against C-S Aviation because of
arguments based on res judicata, defects in Defendants’ veilpiercing claim, and due process).)
Judgment Action is dismissed.
17
Accordingly, the Declaratory
Conclusion
For the reasons stated above, the Court will abstain and
Defendants' motion to dismiss is GRANTED.
Cou~t's
In light of the
conclusion based on Wilton and Dow Jones, it is not
necessary to address the parties' arguments related to dismissal
pursuant to Rule 12 (b) ( 7) .
The Clerk of the Court is respectfully directed to
terminate the motion docketed at ECF No. 30, and to close this
case and remove it
~rom
the docket of this Court.
SO ORDERED.
Dated:
New York, New York
March
2018
fl'Z:.
I/
18
John F. KJenan
United States District Judge

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